Bloom v. Fed. Deposit Ins. Corp. (In re First State Bancorporation), 7-11-11916 JA

• Decision Date: 03 July 2014
• Docket Number: Adversary No. 13-1033 J,No. 7-11-11916 JA,7-11-11916 JA
• Parties: In re: FIRST STATE BANCORPORATION, Debtor. LINDA S. BLOOM, as Chapter 7 Trustee for First State Bancorporation, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for First Community Bank, Defendant.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of New Mexico

In re: FIRST STATE BANCORPORATION, Debtor.

LINDA S. BLOOM, as Chapter 7 Trustee for First State Bancorporation, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for First Community Bank, Defendant.

No. 7-11-11916 JA

Adversary No. 13-1033 J

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW MEXICO

Date entered on docket: July 3, 2014

MEMORANDUM OPINION AND ORDER ON MOTION FOR RECONSIDERATION

OF THE COURT'S SEPTEMBER 17, 2013 ORDER

DENYING THE FDIC-R'S MOTION TO DISMISS COUNT II

The Chapter 7 Trustee ("Trustee") of the bankruptcy estate of First State Bancorporation ("Bancorp"), a bank holding company for First Community Bank (the "Bank") filed this adversary proceeding after the Federal Deposit Insurance Company, as receiver ("FDIC-R") for the Bank filed a proof of claim in Bancorp's bankruptcy case asserting a priority unsecured claim in the amount of $63,821,000.00. The claim is based on Bancorp's alleged commitment to maintain the capital of the Bank ("capital maintenance guaranty").¹ Count I of the Trustee's Complaint for Avoidance of Fraudulent Conveyance and Objection to Claim No. 9-2 (the "Complaint") objects to FDIC-R's claim. Count II of the Complaint seeks disallowance of theclaim by avoiding the obligation to FDIC-R upon which its claim is based as constructively fraudulent under 11 U.S.C. § 548(a)(1)(B).²

FDIC-R filed a Motion to Dismiss Count II, which the Court denied in a Memorandum Opinion and Order entered September 17, 2013. See Docket Nos. 17 and 18. In denying the Motion to Dismiss Count II the Court held: 1) the jurisdictional bar found in § 1821(d)(13)(D) of FIRREA does not bar the Trustee's constructive fraud claim under § 548 because such claim is a non-monetary claim seeking to avoid liability asserted defensively in response to FDIC-R's proof of claim; and 2) FIRREA's regulatory requirements governing capital maintenance guarantees are insufficient to conclusively establish as a matter of law reasonably equivalent value for purposes of § 548(a)(1)(B). FDIC-R now invites the Court to revisit its decision. See Motion for Reconsideration of the Court's September 17, 2013 Order Denying the FDIC-R's Motion to Dismiss Count II ("Motion for Reconsideration") - Docket No. 22.

FDIC-R raises three main arguments in support of its Motion for Reconsideration: 1) the only mechanism for the Trustee to object to FDIC-R's claim based on a § 548 constructive fraud theory is § 502(d), which is unavailable under the circumstances of this case; 2) the Court misapplied the holding of Resolution Trust Corporation v. Love, 36 F.3d 972 (10^th Cir. 1994) and its progeny; and 3) the Court should have applied the principle established by BFP v. Resolution Trust Corporation, 511 U.S. 531, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994) and Southeast Waffles, LLC v United States Department of Treasury/Internal Revenue Service (In re Southeast Waffles, LLC), 702 F.3d 850 (6^th Cir. 2012) to conclude that compliance with FIRREA's statutory scheme establishes reasonably equivalent value as a matter of law. The Court heardoral argument on the Motion for Reconsideration and took the matter under advisement. For the reasons stated below, the Court will clarify portions of its earlier ruling.

DISCUSSION

A. Application of Fed.R.Civ.P. 54(b)

The Court's Memorandum Opinion and order denying FDIC-R's Motion to Dismiss Count II was a non-final, interlocutory decision.³ Consequently Fed.R.Civ.P. 59 and Fed.R.Civ.P. 60 do not apply to the Motion for Reconsideration.⁴ Instead, FDIC-R requests the Court to reconsider its decision under Fed.R.Civ.P. 54(b), which provides, in relevant part:

any order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before entry of a judgment adjudicating all the claims and all the parties' rights and liabilities.

Fed.R.Civ.P. 54(b), made applicable to adversary proceedings by Fed.R.Bankr.P. 7054. Under this rule, the Court may reconsider its interlocutory order at any time before making a final determination with respect to all of the claims of all of the parties. See Raytheon Constructors, Inc. v. ASARCO, Inc., 368 F.3d 1214, 1217 (10^th Cir. 2003)(quoting Fed.R.Civ.P.54(b)); C & A Const. Co. v. DHC Dev., 501 Fed.Appx. 763, 779 (10^th Cir. 2012)(declining to review an interlocutory judgment, but noting that "[t]he district court should . . . remain free to revisit its interlocutory conclusions, if necessary, at any time prior to entering final judgment." (citing Fed.R.Civ.P. 54(b)). The Court also enjoys inherent power to revise its own earlier, non-final decision. See Been v. O.K. Indus., Inc., 495 F.3d 1217, 1225 (10^th Cir. 2007)("[D]istrict courts generally remain free to reconsider their earlier interlocutory orders.")(citing Harlow v. Children's Hosp., 432 F.3d 50, 55 (1^st Cir. 2005)). Whether to grant a motion to reconsider an interlocutory order is left to the Court's sound discretion. See Fed.R.Civ.P. 60(b), Advisory Committee Notes accompanying the 1946 Amendment ("[i]nterlocutory judgments . . . are left subject to the complete power of the court rendering them to afford such relief from them as justice requires."); Elephant Butte Irrigation Dist. v. United States Dep't of Interior, 538 F.3d 1299, 1306 (10^th Cir. 2008)(noting that under Rule 54(b), "'every order short of a final decree is subject to reopening at the discretion of the district judge.'")(quoting Price v. Philpot, 420 F.3d 1158, 1167 n.9 (10^th Cir. 2005)(additional internal quotations and citation omitted)). Despite the Court's broad discretion and inherent authority to revisit its own earlier, non-final order, a motion to reconsider under Rule 54(b) does not afford the moving party an opportunity to "'rehash' old arguments." Akbari-Shahmirzadi, 2013 WL 1099794 at *6 (quoting Young v. Murphy, 161 F.R.D. 61, 62 (N.D.Ill. 1995)(additional internal quotation marks and citation omitted). To convince the Court to change its mind, the requesting party generally must raise "'facts or law of a strongly convincing nature.'" Id. (quoting California v. Summer Del Caribe, Inc., 821 F.Supp. 574, 578 (N.D.Cal. 1993)). The Court will review the Motion for Reconsideration with these standards in mind.

B. Section 502(d) is not the only mechanism for the Trustee to object to FDIC-R's claim on a constructive fraud theory.

FDIC-R argues that the only avenue for the Trustee to avoid an obligation based on a § 548 constructive fraud theory as defense to the allowance of a claim against the estate is through § 502(d), and that, because that Bankruptcy Code section is unavailable to the Trustee as a matter of law, her objection to the FDIC-R's proof of claim based on § 548's constructive fraud provision necessarily fails. Section 502(d) provides:

Notwithstanding subsections (a) and (b) of this section, the court shall disallow any claim of any entity from which property is recoverable under section 542, 543, 550, or 553 of this title or that is a transferee of a transfer avoidable under section 522(f), 522(h), 544, 545, 547, 548, 549 or 724(a) of this title, unless such entity or transferee has paid the amount , or turned over any such property for which such entity or transferee is liable under section 522(i), 542, 543, 550, or 553 of this title.

11 U.S.C. § 502(d).

Under this section, a claim against the bankruptcy estate will be disallowed if the claimant fails to pay money or turnover property as required by a judgment avoiding a transfer under specified sections of the Bankruptcy Code.

Section 502(d) pressures creditors to return property or pay money to the estate as required by a judgment avoiding a transfer. See In re Davis, 889 F.2d 658, 661 (5^th Cir. 1989)(observing based on the legislative history and policy that § 502(d) "is intended to have the coercive effect of insuring compliance with judicial orders."); In re Dornier Aviation (North America), Inc., 320 B.R. 831, 835 (E.D.Va. 2005)(stating that § 502(d) may be viewed as "a tool for debtors to coerce creditors to comply with judicial orders to return property")(citations omitted). The pressure applied is that unless the creditor turns over the property or pays the money, the creditor's claim against the estate will be disallowed, thereby depriving the creditor of a distribution from the estate. See In re Commercial Fin. Services, Inc., 322 B.R. 440, 452 (Bankr.N.D.Okla. 2003)(stating that under § 502(d), a claimant will not be allowed "the right toparticipate in distribution of the estate if that claimant has property to which the estate is entitled."). A creditor's failure to return property or pay money as required by a judgment avoiding a transfer provides a trustee with a complete defense to the creditor's claim. The Court agrees that § 502(d) is not available to the Trustee because it applies only to avoidance of transfers and not to avoidance of obligations.⁵ See 11 U.S.C. § 502(d).⁶ The Trustee seeks to avoid obligations under the capital maintenance guaranty, not transfers. Even so, the Trustee may pursue her defense to FDIC'R's claim by proceeding under § 548 despite the inapplicability of §502(d).

The defensive use of a judgment under §548 avoiding an obligation is analogous to the defensive use of a fraudulent transfer judgment under § 502(d). Like § 502(d), § 548 can serve as a complete defense to a claim. Avoidance of an obligation under § 548 results in disallowance of the claim just like a failure to return property or pay money as required by a judgment avoiding a transfer results in disallowance of the claim under § 502(d). Unlike § 502(d), disallowance of a claim based on an obligation avoided under § 548 is an automatic consequence of the avoidance judgment; there is nothing a claimant could pay or turn over to the estate to change that result. Because a judgment avoiding an obligation by...